In July 2019 the Reserve Bank cut the official rate to its lowest ever recorded level of 1% but will banks pass on the cut?
The Reserve bank cited concerns about consumer spending and low wages growth that influenced their decision. Australia’s inflation has remained stubbornly low, and that provides room for expansionary monetary policy.
This cut follows a similar cut in June, the first back-to-back rate cut decision in consecutive months since 2012. The bank noted from a global perspective economic risks were evident especially relating to changing trade relationships and a slow-down in China and Asia.
The unemployment rate is around 5.2% (and expected by some observers to rise to around 5.5% by end 2020). The bank indicated that business investment was constrained and finance available to small and medium size businesses remained somewhat restricted thanks to tight credit conditions. Mortgage rates were observed to be at ‘record lows’ with competition healthy for borrowers of ‘high quality’.
Australia’s largest banks, CBA, Westpac and NAB are not passing on in full the rate cut. Westpac are lowering rate by 0.2% (a repeat of the 0.2% cut in June when the RBA cut rates by 0.25%.), while CBA said “With official interest rate settings already at record lows, we are focused on balancing the benefits and the costs of further interest rate reductions ..” and decided to cut rates for principal + interest borrowers by 0.19% after cutting rates in June by the full 0.25% announced by the RBA.
NAB announced in June it would pass one the full 0.25% rate cut, but in July announced a 0.19% rate cut on the back of the RBA announcement on 2nd July. ANZ will pass on the full rate cut of 0,25% in July after dropping rates by 0.18% last month when the RBA dropped the official rate by 0.25%.
These rate falls will be a welcome relief for those on higher rate loans including interest-only loans, loans for non-residents or those with foreign incomes, and those with higher loan ratios versus the value of the purchased property.
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